<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
---- Exchange Act of 1934
For the quarterly period ended April 30, 2000 .
---------------------------
Transition report pursuant to Section 13 or 15 (d) of the Securities
------ Exchange Act of 1934
For the transition period from to .
--------- ----------
Commission File Number 0-14443
WASTE TECHNOLOGY CORPORATION
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(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 13-2842053
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(State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization)
Identification No.)
5400 Rio Grande Avenue
Jacksonville, Florida 32254
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(Address of Principal Executive Offices) (Zip Code)
(904) 355-5558
--------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
At May 31, 2000, Registrant had outstanding 5,516,349 shares of its
Common Stock.
Transitional small business disclosure format (check one):
Yes No X
--- ---
<PAGE>
WASTE TECHNOLOGY CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
o Consolidated Balance Sheets as of April 30, 2000
and October 31, 1999....................................................................... 3
o Consolidated Statements of Income for the three months and
six months ended April 30, 2000 and April 30, 1999......................................... 5
o Consolidated Statements of Changes in Stockholders' Equity
for the period from October 31, 1998 to April 30, 2000..................................... 7
o Consolidated Statements of Cash Flows for the three months
and six months ended April 30, 2000 and April 30, 1999..................................... 8
o Notes to Consolidated Financial Statements ................................................ 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS............................................................................ 13
PART II. OTHER INFORMATION
o Signatures .............................................................................. 16
</TABLE>
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
04/30/00 10/31/99
Unaudited
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $14,332 $18,432
Accounts receivable, net of allowance
for doubtful accounts of $86,000 and $138,000 respectively 1,067,864 1,282,095
Inventories 1,385,853 2,078,389
Prepaid expense and other current assets 775 11,521
------------------- --------------------
Total current assets 2,468,824 3,390,437
Property, plant and equipment at cost 1,831,567 3,642,755
Less: accumulated depreciation 1,197,332 1,709,686
------------------- --------------------
Net property, plant & equipment 634,235 1,933,069
Other assets:
Other assets 8,478 31,818
Due from Officer 365,875 356,778
------------------- --------------------
Total other assets 374,353 388,596
------------------- --------------------
TOTAL ASSETS $3,477,412 $5,712,102
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
04/30/00 10/31/99
Unaudited
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Revolving promissory note $0 $553,852
Current maturities of long-term debt 108,333 195,985
Capital Lease obligation 0 16,701
Accounts payable 557,451 1,613,837
Accrued liabilities 623,472 559,773
Customer deposits 157,624 768,835
Accrued Judgment 532,000 519,000
------------------- --------------------
Total current liabilities 1,978,880 4,227,983
Long-term debt 144,444 305,070
Capital Lease obligation, less current maturities 0 652,849
------------------- --------------------
Total liabilities 2,123,324 5,185,902
Stockholders' equity
Common stock, par value $.01
25,000,000 shares authorized; 6,179,875
shares issued in 2000 & 1999, respectively 61,799 61,799
Preferred stock, par value $.0001,
10,000,000 shares authorized, none issued
Additional paid-in capital 6,347,187 6,347,187
Accumulated deficit (4,272,526) (5,085,769)
------------------- --------------------
2,136,460 1,323,217
Less: Treasury stock, 663,526 shares at cost 419,306 419,306
Less: Note receivable from shareholders 363,066 377,711
------------------- --------------------
Total stockholders' equity 1,354,088 526,200
------------------- --------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $3,477,412 $5,712,102
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Three months ended: 04/30/00 04/30/99
<S> <C> <C>
Net Sales $2,317,750 $2,122,545
Cost of Sales 1,732,953 1,804,583
------------------- --------------------
Gross Profit 584,797 317,962
Operating Expenses:
Selling 164,551 253,563
General and Administrative 275,113 356,871
------------------- --------------------
Total operating expenses 439,664 610,434
Operating Income (Loss) 145,133 (292,472)
Other Income (Expense):
Interest & Dividends 16,296 14,993
Interest Expense (11,786) (80,557)
Other Income 486 1,313
Net gain on Disposal of Fixed Assets 0 0
Provision for Judgment (6,000) (6,000)
------------------- --------------------
Total Other Income (Expenses) (1,004) (70,251)
------------------- --------------------
Income (Loss) before income taxes 144,129 (362,723)
Income Tax Provision
Current 0 0
Deferred 0 0
------------------- --------------------
NET INCOME (LOSS) 144,129 (362,723)
Basic and diluted Income (Loss) per share 0.03 (0.07)
Weighted average number of shares 5,516,349 5,516,349
</TABLE>
See accompanying notes to consolidated statements.
5
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Six months ended: 04/30/00 04/30/99
<S> <C> <C>
Net Sales $4,775,058 $4,293,699
Cost of Sales 3,634,845 3,694,271
------------------- --------------------
Gross Profit 1,140,213 599,428
Operating Expenses:
Selling 338,042 477,709
General and Administrative 574,233 715,888
------------------- --------------------
Total operating expenses 912,275 1,193,597
Operating Income (Loss) 227,938 (594,169)
Other Income (Expense):
Interest & Dividends 35,230 30,102
Interest Expense (66,953) (140,864)
Other Income 3,099 5,507
Net gain on Disposal of Fixed Assets 626,929 0
Provision for Judgment (13,000) (11,000)
------------------- --------------------
Total Other Income (Expenses) 585,305 (116,255)
------------------- --------------------
Income (Loss) before income taxes 813,243 (710,424)
Income Tax Provision
Current 0 0
Deferred 0 0
------------------- --------------------
NET INCOME (LOSS) 813,243 (710,424)
Basic and diluted Income (Loss) per share 0.15 (0.13)
Weighted average number of shares 5,516,349 5,516,349
</TABLE>
See accompanying notes to consolidated statements.
6
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
As of April 30, 2000
unaudited
<TABLE>
<CAPTION>
Common Stock
Par Value $.01 Authorized
25,000,000 Shares
----------------------------------------
NUMBER ADDITIONAL
OF SHARES PAR PAID-IN ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT
---------------------------------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Balance at October 31, 1998 6,179,875 $ 61,799 $ 6,347,187 $ (4,255,917)
Net Adjustment of Note Receivable
from shareholder -0- -0- -0- -0-
Net Income (Loss) -0- -0- -0- (829,852)
----------------- ------------------ ------------------ ----------------
Balance at October 31, 1999 6,179,875 $ 61,799 $ 6,347,187 $ (5,085,769)
Net Adjustment of Note Receivable
from shareholder -0- -0- -0- -0-
Net Income (Loss) -0- -0- -0- 813,243
----------------- ------------------ ------------------ ----------------
Balance at April 30, 2000 6,179,875 $ 61,799 $ 6,347,187 $ (4,272,526)
<CAPTION>
Treasury Stock
----------------------------------------
NUMBER TOTAL
OF STOCKHOLDERS'
SHARES COST OTHER EQUITY
---------------------------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Balance at October 31, 1998 663,526 $ (419,306) $ (363,809) $ 1,369,954
Net Adjustment of Note Receivable
from shareholder -0- -0- (13,902) (13,902)
Net Income (Loss) -0- -0- -0- (829,852)
----------------- ----------------- ------------------ ------------------
Balance at October 31, 1999 663,526 $ (419,306) $ (377,711) $ 526,200
Net Adjustment of Note Receivable
from shareholder -0- -0- 14,645 14,645
Net Income (Loss) -0- -0- -0- 813,243
----------------- ----------------- ------------------ ------------------
Balance at April 30, 2000 663,526 $ (419,306) $ (363,066) $ 1,354,088
</TABLE>
See accompanying notes to consolidated financial statements
7
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
unaudited
<TABLE>
<CAPTION>
For The Three Months Ended 04/30/00 04/30/99
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $ 144,129 $ (362,723)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 17,501 78,318
Gain from sale of equipment 0 0
Increase (decrease) from changes in:
Accounts receivable (85,745) 61,543
Inventories 215,000 (22,579)
Prepaid expenses and other current assets 93,689 (209)
Other assets (4,473) 0
Accounts payable (16,156) (321,651)
Accrued liabilities 101,642 43,680
Customer deposits (439,754) 608,402
Accrued Judgment 6,000 6,000
----------------- -----------------
Net cash provided by (used in) operating activities 31,833 90,781
Cash flows from investing activities:
Increase in notes receivable from shareholders (595) (33,588)
Purchase of property and equipment 0 0
Proceeds from sale of assets and liabilities 0 0
----------------- -----------------
Net cash provided by (used in) investing activities (595) (33,588)
Cash flows from financing activities:
Increase (decrease) in Debt (27,084) (49,661)
----------------- -----------------
Cash flows provided by (used in) financing activities (27,084) (49,661)
Net increase (decrease) in cash 4,154 7,532
Cash at beginning of period 10,178 3,877
Cash at end of period 14,332 11,409
Supplemental schedule of disclosure of cash flow information
Cash paid during period for:
Interest 11,786 85,555
Income taxes 0 0
</TABLE>
See accompanying notes to consolidated financial statements
8
<PAGE>
WASTE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
unaudited
<TABLE>
<CAPTION>
For The Six Months Ended 04/30/00 04/30/99
<S> <C> <C>
Cash flow from operating activities:
Net (loss) income $ 813,243 $ (710,424)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 49,938 156,640
Gain from sale of equipment (626,929) 0
Increase (decrease) from changes in:
Accounts receivable (46,040) 612,218
Inventories 331,608 248,943
Prepaid expenses and other current assets (8,073) (998)
Other assets 5,514 0
Accounts payable (744,398) (429,944)
Accrued liabilities 105,062 (33,483)
Customer deposits 40,967 507,961
Accrued Judgment 13,000 11,000
----------------- -----------------
Net cash provided by (used in) operating activities (66,108) 361,913
Cash flows from investing activities:
Increase in notes receivable from shareholders 14,645 (47,222)
Purchase of property and equipment 0 (2,304)
Proceeds from sale of assets and liabilities 661,220 0
----------------- -----------------
Net cash provided by (used in) investing activities 675,865 (49,526)
Cash flows from financing activities:
Increase (decrease) in Debt (613,857) (370,327)
----------------- -----------------
Cash flows provided by (used in) financing activities (613,857) (370,327)
Net increase (decrease) in cash (4,100) (57,940)
Cash at beginning of period 18,432 69,349
Cash at end of period 14,332 11,409
Supplemental schedule of disclosure of cash flow information
Cash paid during period for:
Interest 56,000 140,864
Income taxes 0 0
</TABLE>
See accompanying notes to consolidated financial statements
9
<PAGE>
Waste Technology Corporation and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business:
Waste Technology Corporation (the Company) is a manufacturer of baling machines
which utilize technical, hydraulic and electrical mechanisms to compress a
variety of materials into bales. The Company's customers include plastic
recycling facilities, paper mills, textile mills, and paper recycling facilities
throughout the United States, the Far East, Europe, and South America. During
fiscal 1999, the Company had two manufacturing subsidiaries, International Baler
Corp. (IBC), located in Jacksonville, Florida, and International Press and
Shear, Corporation (IPS), located in Baxley, Georgia.
In December 1999, the Company sold the assets of its IPS subsidiary of
approximately $2,000,000 to two IPS officers for $800,000 and the assumption of
$1,900,000 liabilities. The IPS subsidiary was formed in the second quarter of
fiscal 1995 and greatly expanded the manufacturing capacity of the Company.
Operating losses at IPS are a significant cause of the consolidated losses in
both 1999 and 1998. These losses occurred primarily as a result of the
continuing depressed recycled products markets, as well as higher than
anticipated costs of sales and selling and administrative expenses. In the
fourth quarter of 1998 and continuing in 1999 and the first half of fiscal 2000,
the Company effectuated significant cost reductions which exceeded $700,000 in
fiscal 1999. These cost cutting measures included personnel eliminations, salary
reductions and advertising reductions. The CEO has taken over the direction of
the sales and marketing functions.
The Company's management and Board of Directors have substantial concern over
recent operating performances, however, it believes that it has several viable
options to continue as a going concern.
With the elimination of the IPS subsidiary, the Company anticipates that
operating results should be significantly improved in fiscal 2000. The Company
has introduced new textile balers, new corrugated balers and has been
manufacturing the patented hinge-side baler and marketing it under the trade
name "Expando Hopper." The Company's sold order backlog at May 31, 2000, is
approximately $1,844,000.
2. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the
10
<PAGE>
three-month and six-month periods ended April 30, 2000, are not necessarily
indicative of the results that may be expected for the year ending October 31,
2000. For further information, refer to the Company's Annual Report on form
10-KSB for the year ended October 31, 1999, and the Management Discussion
included in this form 10-QSB.
Certain prior year amounts have been reclassified to conform with the current
year's presentation.
3. Summary of Significant Account Policies:
(a) Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of
Waste Technology Corporation and all of its wholly owned and majority owned
subsidiaries. Intercompany balances and material intercompany transactions
have been eliminated in consolidation.
(b) Basic and Diluted Earnings (Loss) Per Share:
Basic earnings (loss) per share is calculated using the weighted average
number of common shares outstanding during each period. Diluted earnings
(loss) per share includes the net additional number of shares that would be
issued upon the exercise of stock options using the treasury stock method.
Options are not considered in loss periods or in periods in which options
are "out of the money," as they would be antidilutive.
4. Related Party Loan and Notes Receivable:
The Company was indebted in the amount of $452,812 to the General Counsel and
his law firm at April 30, 2000. During 1997, the General Counsel and his law
firm authorized the Company to set off accrued legal fees against the note
receivable from the General Counsel at such time as the Board of Directors shall
determine. Accordingly, accrued legal fees are presented as a reduction of notes
receivable from General Counsel at April 30, 2000.
On December 29, 1995, the Company transferred a life insurance policy, covering
the life of its president, to the President in exchange for a note receivable.
The amount of the note receivable from the president is equal to the amount of
the cash surrender value of the policy at the time of the transfer. Interest
accrues at the rate of 6% per annum. No principal or interest is due until
proceeds from the policy are realized.
11
<PAGE>
5. Revolving Promissory Note:
The Company had a $2,000,000 line of credit with $553,852 outstanding at October
31, 1999. The line of credit was secured by substantially all assets. In
December 1999, the Company paid the outstanding balance on the line of credit.
The Company is in the process of attempting to secure a new line of credit at a
more favorable interest rate.
6. Term Notes and Capital Leases:
The term note payable to Appling County, Georgia, the term note payable to a
bank ($51,654) and the capital lease related to the Baxley facility were assumed
by purchasers of the assets of the IPS operations.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
04-30-00 10-31-99
-------- --------
<S> <C> <C>
Term note payable to bank at prime rate, due in equal monthly installments
of $9,028, plus interest through August 2002, secured by substantially
all assets $252,777 $306,944
Term note payable to Appling County, Georgia at 4.0 % due in equal monthly
installments of $3,417, including interest through July 2003
-- 142,457
Term Note payable to bank at 9.75%. Due in monthly installments of $2,466,
including interest through September 2003 -- 51,654
-------- --------
252,777 501,055
Amounts classified as current 108,333 195,985
-------- --------
$144,444 $305,070
======== ========
</TABLE>
7. Income Taxes
As of April 30, 2000, the Company's anticipated annual effective tax rate is
zero as a result of the reduction in a portion of the valuation allowance equal
to the utilization of net operating loss carryforwards. As of April 30, 2000,
the Company has approximately $2,743,000 of net operating loss carryforwards
remaining.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations: Three Month Comparison
For the second quarter ending April 30, 2000, the Company had net sales of
$2,317,750 as compared to $2,122,545 in the second quarter of 1999, an increase
of 9.2%. The increase in sales was the result of higher shipments at the
International Baler Corporation (IBC) and Consolidated Baling Machine Company
(CBM) operations partially offset by the loss of shipments from the
International Press and Shear (IPS) subsidiary which was sold in the first
quarter of fiscal 2000.
The Company had a net income of $144,129 in the second quarter of 2000 as
compared to a loss of $362,723 in the second quarter of 1999. Operating income
improved from a loss of $292,472 in 1999 to operating income of $145,133. The
higher operating income is the result of higher gross profit margins relating to
the sales of specialty balers at IBC and CBM and lower selling and
administrative expenses, due in part to the sale and discontinuance of the IPS
operation.
Interest expenses, due to the sale of the IPS assets and the elimination of the
line of credit was reduced from $80,557 in the second quarter of 1999, to
$11,786 in the second quarter of 2000.
Results of Operation: Six Month Comparison
In December 1999, the Company sold the assets of its IPS subsidiary to two IPS
officers for $800,000 and the assumption of the subsidiary's liabilities. With
the elimination of the IPS subsidiary, the Company anticipates that operating
results should be significantly improved in fiscal 2000. The Company has
introduced new textile balers, new corrugated balers and has been marketing the
patented hinge-side baler. The Company anticipates that these products will also
have a significant impact on sales in fiscal 2000.
Net sales in the first six months of fiscal 2000, were $4,775,058 as compared to
$4,293,699 in the prior year, an increase of 11.2%. The higher sales are the
result of substantially higher shipments at IBC and CBM and significantly lower
shipments at IPS which operated for just over one month of fiscal 2000.
The Company had net income of $813,243 in the first half of 2000 versus a net
loss of $710,424 in the first half of 1999. The income in 2000 included a gain
on the sale of the IPS assets of $626,929. Operating income was $227,938 in 2000
versus an operating loss of $594,169 in 1999. Again, the higher operating income
is the result of higher gross profit margins relating to the sales of specialty
balers at IBC and CBM and lower selling and administrative expenses, due in
large part to the sale and discontinuance of the IPS operations.
13
<PAGE>
The sold order backlog as of May 31, 2000, was $1,844,000 as compared to
$2,994,000 at May 31, 1999. In the prior year the backlog included IPS orders of
$839,000.
Financial Condition:
Net working capital increased from a deficit of $837,546 at October 31, 1999, to
$489,944 at April 30, 2000. This improvement is primarily due to the sale of the
IPS assets including the assumption of the liabilities of IPS by the buyers.
With some of the proceeds from the sale of the assets of IPS, the Company has
paid the outstanding balance of the loan from Foothill Capital Corporation,
which had an interest rate of 14.75%. The Company is in the process of
attempting to secure a new line of credit at a more favorable interest rate.
The term note with SouthTrust Bank had a balance of $252,777 at April 30, 2000,
and is due in equal monthly installments of $9,028, plus interest at the prime
rate to August 2002.
Our auditors, KPMG LLP, have stated in the "Report of Independent Accountants"
for October 31, 1999, to the shareholders of Waste Technology Corporation that
there is "substantial doubt" about the Company's ability to continue as a going
concern. The Company's Management and Board of Directors have substantial
concern over recent operating performances, however, the Company has been
profitable for the last two quarters and it believes that it will continue to be
profitable in the future. The Company continues to make efforts to reduce costs
and improve marketing.
The Company has no commitments for any material capital expenditures. Other than
as set forth above, there are no unusual or infrequent events or transactions or
significant economic changes which materially affect the amount of reported
income from continuing operations.
This "Management's Discussion and Analysis" contains forward-looking statements
within the meaning of Section 21B of the Securities and Exchange Act of 1934, as
amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions that such
statements are necessarily based on certain assumptions which are subject to
risks and uncertainties including, but not limited to, changes in general
economic conditions and changing competition which could cause actual results to
differ materially from those indicated. Therefore, the Company may have to
consider additional financing and/or operating alternatives to insure the
Company will continue as a going concern.
Year 2000 Compliance:
The Company achieved Year 2000 compliance for all internal systems and did not
suffer any adverse effects with respect thereto. The Company does not anticipate
any such problems in the future.
14
<PAGE>
Inflation:
The costs of the Company and its subsidiaries are subject to the general
inflationary trends existing in the general economy. The Company believes that
expected pricing by its subsidiaries for balers will be able to include
sufficient increases to offset any increase in costs due to inflation.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by undersigned
hereto duly authorized.
Dated: June 13, 2000 WASTE TECHNOLOGY CORPORATION
BY: /s/Ted C. Flood
-----------------------------
Ted C. Flood, President
(Chief Executive Officer)
BY: /s/William E. Nielsen
------------------------------
William E. Nielsen
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
